REG 22 - Suretyship

Question 1

Suretyship

Answer 1

A Suretyship is an arrangement in which a person agrees to be answerable to a creditor for a claim against another person. Surety needs capacity, NOT the debtor.

Question 2

Types of Suretyship (3)

Answer 2

A Suretyship is an arrangement in which a person agrees to be answerable to a creditor for a claim against another person. There are several possible varieties of arrangements:

• Primary - when a person agrees to be a surety accomodation party or cosigner, the creditor is permitted to treat them as a debtor & demand payment without any proof of default by the principal debtor.
• Secondary - when a person agrees to be a guarantor & endorser of a check or negotiable instrument, the creditor may only demand payment if the principal defaults on the payment.
• Last Resort - when a person agrees to be a conditional surety or guarantor of collection, the creditor may not demand payment from them until all available means of collection from the principal debtor are exaused.

Question 3

A surety is obligated to pay once the creditor has met the requirements for demanding payment even if the debtor? (3)

Answer 3

• Lacks the capacity to make contracts
• Is discharged in bankruptcy from all debts
• Used fraud to induce the surety to make their promise to the creditor

Question 4

Duties of the Creditor

Answer 4

• Must notify surety of matters affecting risk.
• Must not act to increase surety’s risk.
• Losses claim against surety in some circumstances
• Misdeeds by debtor do not release surety

Question 5

Rights of Surety

(Before/After)

Answer 5

• Before paying creditor:
  
  • Offset - reduce payment by amounts creditor owes surety
  • Exoneration - sues debtor to compel payment to creditor
• After paying creditor:
  
  • Indemnification - rembursement by debtor
  • Subrogation - access to creditor rights such as collateral
  • Collateral given by debtor

Question 6

Creditor Rights (8)

Answer 6

When a debtor owes money, there are several options available to the creditor in order to satisfy the debt.

• Composition of Creditors
• Assignment for the Benefit of Creditors
• Writ of Attachment
• Garnishment
• Liens
• Credit Card Fraud Act
• Homestead Exemption
• Debt Collectors

Question 7

Compostion of Creditors

Answer 7

An agreement in which creditors accept a proportionate amount as full settlement for their debts.

Question 8

Assignment for the benefits of Creditors

Answer 8

The Debtor voluntarily transfers assets to the trustee for the benefit of creditors, but the debtor still owes the debt.

Question 9

Writ of Attachment

Answer 9

Prejudicial remedy in which a creditor is allowed to take possession of personal property of the debtor prior to getting a judgment for the past-due debt.

Question 10

Garnishment

Answer 10

Permits the creditor to seize prperty of the debtor that is being held by a third party.

• Could include wages or money held in a bank account
• Federal social security benefits are exempt from garnisment

Question 11

Liens

Answer 11

A claim against a debtor’s property that must be satisfied before the property is available to satisfy the claims of other creditors.

Question 12

Credit Card Fraud Act (CCFA)

Answer 12

A credit card holder is protected from losses in excess of $50 due to unauthorized use of holder’s credit card.

Question 13

Homestead Exemption

Answer 13

When going bankrupt, one can claim a certain amount of equity in one’s home as exempt property, however this doesn’t prevent one from being liable if there is an IRs tax lien or a valid home mortgage lien.

Question 14

Debt Collectors

(Fair Debt Collection Act)

Answer 14

The Fair Debt Collection Practices Act prohibits a debt collector from harassing the debtor.